Hedge funds are piling into startups. Now there's a race to give them data to track the notoriously opaque private market.

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  • Hedge funds have piled into private markets at a record pace, according to Goldman Sachs.
  • Private market data can be a tough find, but a few upstarts believe they have found a way in.
  • New tools from Forge Global and Cyndx are two examples.

The pipeline is gushing.

Money is pouring into the private markets, pumping up valuations and forcing new entrants and old venture investing stalwarts to battle over funding rounds. Already this year, 155 start-ups became unicorns, according to Goldman Sachs.

Hedge funds including D1, Coatue, Tiger Global, and Whale Rock pumped over $150 billion into private companies in the first half of 2021 — more than the total of 2020. More than a quarter of money invested in private companies this year has come from hedge funds, according to Goldman Sachs.

“We are observing a greater tendency among new launches to incorporate privates as part of their strategy from inception: more than 25% of the new equity long short launches we have worked with since the start of 2020 have a mandate to invest in privates in some form,” Goldman’s prime brokerage desk wrote in a report.

Narrowing the data gap between public and private markets

But these hedge funds are facing an information problem. Unlike public companies, private companies don’t have to disclose their financials, and the largest unicorns can choose which funds they want as their investors. One doesn’t need to look further than WeWork’s failed IPO to see what happens when a start-up relying on its reputation and connections is finally forced to reveal its numbers to investors.

Hedge funds are eager to get their hands on the same kind of information they use to invest in the public markets, and two companies offering that kind of data are eager to get their business.

Forge Global, a platform for secondary shares to be bought and sold, has launched a new data tool called Forge Intelligence that pulls information from a company’s proprietary transaction log. The platform has $1.8 billion in trade volume in 2020, and $700 million just in the first quarter of 2021.

“We want to narrow the gap between the public and the private markets,” said Vidya Eashwer, Forge’s head of data, in an interview with Insider. Many investors, she said, have “blind spots” in the private markets. Knowing which companies are trading at what price can add clarity to the market.

“We want to serve the broader private markets ecosystem,” she said.

Cyndx is another private markets database — with a twist. A proprietary AI tool finds companies likely to raise capital in the next six months. The tool is 86% accurate, and getting better as it ingests more data, according to Jim McVeigh, Cyndx’s founder.

“We developed the product for one of the big banks. They said ‘Tell us who needs capital and we will go to them first,'” he said.

‘Help in the boardroom’

Unlike mainstay private markets databases that pull numbers straight from press releases, Forge Global and Cyndx use their own technology to offer data that others don’t have, similar to many alternative data vendors who cater to public market investors.

Banks, VCs, and private equity all use Cyndx, as do companies seeking potential M&A targets, according to McVeigh. For funds trying to avoid being outbid by Tiger Global, a headstart can be critical. 

Cyndx thinks of itself more as a matchmaker then a database, McVeigh said, as it filters investors and companies to find those with matching characteristics. 

“It’s not who is raising, but who you should be raising with,” McVeigh said.

“That help in the boardroom can be as valuable as the capital they raised.”